merc-ex991

MERCER INTERNATIONAL INC. REPORTS SECOND QUARTER AND FIRST HALF 2019
RESULTS AND ANNOUNCES QUARTERLY CASH DIVIDEND OF $0.1375

NEW YORK, NY, August 1, 2019 ‑ Mercer International Inc. (Nasdaq: MERC) today reported second quarter 2019 Operating EBITDA increased to $70.0 million from $60.5 million in the second quarter of 2018 and decreased from $123.8 million in the first quarter of 2019.

For the second quarter of 2019, net income decreased to $10.3 million, or $0.16 per share, from $16.8 million, or $0.26 per share, in the second quarter of 2018 and $51.6 million, or $0.79 per basic share and $0.78 per diluted share, in the first quarter of 2019.

In the first half of 2019, Operating EBITDA increased by 21% to $193.8 million from $159.9 million in the same period of 2018. In the first half of 2019, net income increased to $61.9 million from $42.4 million in the same period of 2018.

Mr. David M. Gandossi, the Chief Executive Officer, stated: "Our second quarter results reflect an overall weakening of pulp markets resulting from weak demand for certain paper grades in China and high producer inventories. As a result of the decline in pulp prices in China during the current quarter of 2019, we recorded a non-cash write down of inventories at our Canadian mills of $6.9 million.

Overall, I am pleased with our mills strong production this quarter and the acquisition of MPR continues to materially increase our production, revenues and scope of operations."

*Operating EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States ("GAAP") and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. See page 6 of the financial tables included in this press release for a reconciliation of net income to Operating EBITDA.

	Q2		Q1		Q2		YTD		YTD
	2019		2019		2018		2019		2018
	(in thousands, except per share amounts)
Revenues	$	425,753	$	483,950	$	346,532	$	909,703	$	714,435
Operating income	$	37,810	$	93,552	$	37,476	$	131,362	$	113,524
Operating EBITDA	$	69,958	$	123,799	$	60,490	$	193,757	$	159,857
Loss on settlement of debt	$	—	$	—	$	—	$	—	$	(21,515)	⁽¹⁾
Legal cost award	$	—	$	—	$	—	$	—	$	(6,951)
Net income	$	10,259	$	51,616	$	16,755	$	61,875	$	42,404
Net income per common share
Basic	$	0.16	$	0.79	$	0.26	$	0.94	$	0.65
Diluted	$	0.16	$	0.78	$	0.26	$	0.94	$	0.65

In the second quarter of 2019 our operating income decreased to $37.8 million from $93.6 million in the first quarter of 2019, and was generally flat from $37.5 million in the same quarter of 2018. The decrease in the current quarter over the prior quarter is primarily due to lower pulp sales realizations and higher maintenance costs arising from scheduled maintenance downtime at our 50% joint venture Cariboo mill. Compared to the same quarter of 2018 lower maintenance costs, higher energy and pulp sales volumes and lower per unit fiber costs were mostly offset by lower pulp and lumber sales realizations.

In the second quarter of 2019 pulp segment operating income increased by approximately 14% to $42.3 million from $37.0 million in the same quarter of 2018. Maintenance costs were significantly lower in the current quarter as our 50% joint venture Cariboo mill had 15 days of scheduled maintenance downtime (approximately 7,500 ADMTs) compared to our mills having 37 days (approximately 55,400 ADMTs) in the same period of the prior year. Excluding the impact of the shuts, production increased in the current quarter due to the inclusion of MPR and overall strong operating performance from all our mills. The higher production contributed to a higher sales volume in the current quarter. The NBSK pulp realized sales price decreased by approximately 15% to $699 per ADMT in the second quarter of 2019 from $821 per ADMT in the same quarter of the prior year due to high producer inventory levels.

Energy and chemical revenues increased by approximately 119% to $25.6 million in the second quarter of 2019 from $11.7 million in the same quarter of 2018 when one turbine at each of our Stendal and Celgar mills was taken offline for scheduled maintenance.

Per unit fiber costs decreased in the current quarter by approximately 10% from the same quarter of 2018 due to the positive impact of a stronger dollar on our euro and Canadian dollar denominated fiber costs and lower per unit fiber costs for our German mills. In Germany, the fiber market was stable due to the continued availability of storm and beetle damaged wood while the market in Celgar's fiber procurement basket remained tight due to strong demand.

Wood Products: Lower per unit fiber costs more than offset by lower lumber sales realizations

In the second quarter of 2019 our wood products segment had an operating loss of $0.1 million compared to operating income of $4.3 million in the same quarter of 2018. Average lumber sales realizations decreased by approximately 20% to $348 per Mfbm in the second quarter of 2019 from approximately $433 per Mfbm in the same quarter of 2018 primarily due to weakening in the U.S. lumber markets which started in the second half of 2018 as a result of high customer inventory levels. European lumber pricing also declined due to an increase in the supply of lumber processed from beetle and storm damaged wood which generally obtains lower prices. In the current quarter, per unit fiber costs decreased by approximately 24% from the same quarter of 2018 primarily as a result of the availability of storm and beetle damaged wood and the positive impact of a stronger dollar on our euro denominated fiber costs.

Consolidated ‑ Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

Total revenues for the first half of 2019 increased by approximately 27% to $909.7 million from $714.4 million in the first half of 2018 primarily due to the inclusion of the results of MPR and higher pulp and energy sales volumes partially offset by lower product sales realizations.

Costs and expenses in the first half of 2019 increased by approximately 30% to $778.3 million from $600.9 million in the first half of 2018 primarily due to the inclusion of MPR costs and higher pulp sales volumes partially offset by lower maintenance costs, the positive impact of a stronger dollar on our euro denominated costs and expenses and lower per unit fiber costs.

For the first half of 2019, our net income increased to $61.9 million, or $0.94 per share, after giving effect to costs of $28.5 million, or $0.44 per basic and $0.43 per diluted share, for the redemption of senior notes and the NAFTA legal cost award from $42.4 million in the same period of 2018.

In the first half of 2019, Operating EBITDA increased by approximately 21% to $193.8 million from $159.9 million in the same period of 2018 primarily due to lower maintenance costs, higher energy and pulp sales volumes, lower per unit fiber costs and the inclusion of MPR partially offset by lower pulp and lumber sales realizations.

We currently expect pulp markets to moderately strengthen with improved pricing in the later part of the year. We currently believe that pulp producer inventories will decline in the third quarter of 2019 as a result of customary summer producer downtime along with steady demand in Europe and North America and moderately higher demand from paper producers in China.

We currently expect lumber pricing in the later part of the year to modestly increase due to seasonal increased demand from the U.S. lumber market.

In the third quarter of 2019, our pulp mills have 10 days of scheduled maintenance downtime, or approximately 12,300 ADMTs. The Peace River mill had previously been scheduled for 58 days of maintenance downtime commencing in the third quarter of 2019 to undertake certain boiler replacements and upgrade work. Such work has now been rescheduled to 2020 primarily due to a delay in the delivery of parts.

In the third quarter we will also continue to be focused on realizing upon the identified synergies at MPR, and continue to expect to realize about $15 to $20 million of synergies this year.

A quarterly dividend of $0.1375 per share will be paid on October 2, 2019 to all shareholders of record on September 25, 2019. Future dividends will be subject to Board approval and may be adjusted as business and industry conditions warrant.

In conjunction with this release, Mercer International Inc. will host a conference call, which will be simultaneously broadcast live over the Internet. Management will host the call, which is scheduled for August 2, 2019 at 10:00 AM (Eastern Daylight Time). Listeners can access the conference call live and archived for 30 days over the Internet at https://edge.media-server.com/mmc/p/cobfhvk4 or through a link on the company's home page at https://www.mercerint.com. Please allow 15 minutes prior to the call to visit the site and download and install any necessary audio software.

Mercer International Inc. is a global forest products company with operations in Germany and Canada with consolidated annual production capacity of 2.2 million tonnes of pulp and 550 million board feet of lumber. To obtain further information on the company, please visit its web site at https://www.mercerint.com.

The preceding includes forward looking statements which involve known and unknown risks and uncertainties which may cause our actual results in future periods to differ materially from forecasted results. Words such as "expects", "anticipates", "projects", "intends", "designed", "will", "believes", "estimates", "may", "could" and variations of such words and similar expressions are intended to identify such forward-looking statements. Among those factors which could cause actual results to differ materially are the following: the highly cyclical nature of our business, raw material costs, our level of indebtedness, competition, foreign exchange and interest rate fluctuations, our use of derivatives, expenditures for capital projects, environmental regulation and compliance, disruptions to our production, market conditions and other risk factors listed from time to time in our SEC reports.

	Q2			Q1			Q2			YTD			YTD
	2019			2019			2018			2019			2018
	(in thousands, except per share amounts)
Pulp segment revenues	$	384,799		$	436,474		$	291,632		$	821,273		$	605,867
Wood products segment revenues		39,452			44,439			54,900			83,891			108,568
Corporate and other revenues		1,502			3,037						4,539
Total revenues	$	425,753		$	483,950		$	346,532		$	909,703		$	714,435

Pulp segment operating income	$	42,251		$	93,520		$	36,976		$	135,771		$	111,030
Wood products segment operating income (loss)		(89	)		1,620			4,322			1,531			7,304
Corporate and other operating loss		(4,352	)		(1,588	)		(3,822	)		(5,940	)		(4,810)
Total operating income	$	37,810		$	93,552		$	37,476		$	131,362		$	113,524

Pulp segment depreciation and amortization	$	29,849		$	28,023		$	21,127		$	57,872		$	42,650
Wood products segment depreciation and amortization		2,010			1,911			1,779			3,921			3,465
Corporate and other depreciation and amortization		289			313			108			602			218
Total depreciation and amortization	$	32,148		$	30,247		$	23,014		$	62,395		$	46,333

Operating EBITDA	$	69,958		$	123,799		$	60,490		$	193,757		$	159,857
Loss on settlement of debt	$	—		$	—		$	—		$	—		$	(21,515)	⁽¹⁾
Legal cost award	$	—		$	—		$	—		$	—		$	(6,951)
Provision for income taxes	$	(10,433	)	$	(24,424	)	$	(8,461	)	$	(34,857	)	$	(18,042)
Net income	$	10,259		$	51,616		$	16,755		$	61,875		$	42,404
Net income per common share
Basic	$	0.16		$	0.79		$	0.26		$	0.94		$	0.65
Diluted	$	0.16		$	0.78		$	0.26		$	0.94		$	0.65
Common shares outstanding at period end		65,629			65,651			65,202			65,629			65,202

	Q2			Q1			Q2		YTD			YTD
	2019			2019			2018		2019			2018
Pulp Segment
Pulp production ('000 ADMTs)
NBSK		452.8			460.6			309.7		913.4			674.2
NBHK		89.4			78.6					168.0
Annual maintenance downtime ('000 ADMTs)		7.5			—			55.4		7.5			55.4
Annual maintenance downtime (days)		15			—			37		15			37
Pulp sales ('000 ADMTs)
NBSK		438.5			466.9			338.3		905.4			705.4
NBHK		81.5			87.8					169.4
Average NBSK pulp list prices ($/ADMT)⁽¹⁾
Europe		997			1,105			1,200		1,051			1,148
China		653			710			910		682			910
North America		1,292			1,380			1,310		1,336			1,272
Average NBHK pulp list prices ($/ADMT)⁽¹⁾
China		635			687			800		661			799
North America		1,100			1,180			1,125		1,140			1,101
Average pulp sales realizations ($/ADMT)⁽²⁾
NBSK		699			757			821		729			801
NBHK		618			656					638
Energy production ('000 MWh)		575.4	⁽³⁾		560.5	⁽³⁾		294.7		1,135.8	⁽³⁾		732.7
Energy sales ('000 MWh)		231.9	⁽³⁾		211.8	⁽³⁾		84.6		443.7	⁽³⁾		260.3
Average energy sales realizations ($/MWh)		93			94			99		94			104

Wood Products Segment
Lumber production (MMfbm)		100.8		110.7				111.9		211.5		214.6
Lumber sales (MMfbm)		101.5		109.2			113.1			210.7		228.2
Average lumber sales realizations ($/Mfbm)		348		359			433			354		426
Energy production and sales ('000 MWh)		24.1		22.4			25.6			46.4		46.2
Average energy sales realizations ($/MWh)	116			119			127		118			131

Average Spot Currency Exchange Rates
$ / €⁽⁴⁾	1.1237			1.1354			1.1922		1.1293			1.2103
$ / C$⁽⁴⁾	0.7475			0.7521				0.7750	0.7497			0.7826

	Three Months Ended June 30						Six Months Ended June 30
	2019			2018			2019			2018
Revenues	$	425,753		$	346,532		$	909,703		$	714,435
Costs and expenses
Cost of sales, excluding depreciation and amortization		336,433			271,134			679,466			525,419
Cost of sales depreciation and amortization		32,038			22,906			62,174			46,115
Selling, general and administrative expenses		19,472			15,016			36,701			29,377
Operating income		37,810			37,476			131,362			113,524
Other income (expenses)
Interest expense		(18,369	)		(12,128	)		(36,920	)		(24,243	)
Loss on settlement of debt		—			—			—			(21,515	)
Legal cost award		—			—			—			(6,951	)
Other income (expenses)		1,251			(132	)		2,290			(369	)
Total other expenses, net		(17,118	)		(12,260	)		(34,630	)		(53,078	)
Income before provision for income taxes		20,692			25,216			96,732			60,446
Provision for income taxes		(10,433	)		(8,461	)		(34,857	)		(18,042	)
Net income	$	10,259		$	16,755		$	61,875		$	42,404
Net income per common share
Basic and diluted	$	0.16		$	0.26		$	0.94		$	0.65
Dividends declared per common share	$	0.1375		$	0.1250		$	0.2625		$	0.2500

	June 30,			December 31,
	2019			2018
ASSETS
Current assets
Cash and cash equivalents	$	257,322		$	240,491
Accounts receivable		273,502			252,692
Inventories		286,839			303,813
Prepaid expenses and other		20,229			13,703
Total current assets		837,892			810,699
Property, plant and equipment, net		1,031,696			1,029,257
Investment in joint ventures		57,659			62,574
Intangible assets, net		55,795			53,927
Operating lease right-of-use assets		14,087			—
Other long-term assets		31,183			17,904
Deferred income tax		1,465			1,374
Total assets	$	2,029,777		$	1,975,735
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable and other	$	222,272		$	194,484
Pension and other post-retirement benefit obligations		831			904
Total current liabilities		223,103			195,388
Debt		983,644			1,041,389
Pension and other post-retirement benefit obligations		26,291			25,829
Finance lease liabilities		23,229			24,669
Operating lease liabilities		11,610			—
Other long-term liabilities		14,394			13,924
Deferred income tax		100,981			93,107
Total liabilities		1,383,252			1,394,306
Shareholders’ equity
Common shares $1 par value; 200,000,000 authorized; 65,629,000 issued and outstanding (2018 – 65,202,000)		65,598			65,171
Additional paid-in capital		342,815			342,438
Retained earnings		345,934			301,990
Accumulated other comprehensive loss		(107,822	)		(128,170	)
Total shareholders’ equity		646,525			581,429
Total liabilities and shareholders’ equity	$	2,029,777		$	1,975,735

	Three Months Ended June 30						Six Months Ended June 30
	2019			2018			2019			2018
Cash flows from (used in) operating activities
Net income	$	10,259		$	16,755		$	61,875		$	42,404
Adjustments to reconcile net income to cash flows from operating activities
Depreciation and amortization		32,148			23,014			62,395			46,333
Deferred income tax provision		426			1,204			4,065			6,016
Loss on settlement of debt		—			—			—			21,515
Defined benefit pension plans and other post-retirement benefit plan expense		860			432			1,716			871
Stock compensation expense		1,202			1,759			857			1,952
Foreign exchange transaction losses		9,505			347			9,242			524
Other		740			964			1,444			1,607
Defined benefit pension plans and other post-retirement benefit plan contributions		(270	)		(60	)		(1,428	)		(105	)
Changes in working capital
Accounts receivable		32,204			13,475			(24,149	)		8,343
Inventories		(869	)		(12,221	)		20,272			(19,043	)
Accounts payable and accrued expenses		4,197			36,906			4,024			54,933
Other		(1,681	)		3,170			(9,406	)		(3,228	)
Net cash from (used in) operating activities		88,721			85,745			130,907			162,122
Cash flows from (used in) investing activities
Purchase of property, plant and equipment		(24,979	)		(28,655	)		(44,368	)		(44,839	)
Purchase of intangible assets		(179	)		(153	)		(495	)		(320	)
Other		(82	)		67			(343	)		67
Net cash from (used in) investing activities		(25,240	)		(28,741	)		(45,206	)		(45,092	)
Cash flows from (used in) financing activities
Redemption of senior notes		—			—			—			(317,439	)
Proceeds from (repayment of) revolving credit facilities, net		(24,732	)		17,665			(58,404	)		37,736
Dividend payments		(8,206	)		(8,147	)		(8,206	)		(16,274	)
Repurchase of common shares		(754	)		—			(754	)		—
Payment of debt issuance costs		(248	)		—			(757	)		(1,390	)
Proceeds from government grants		—			—			6,320			—
Other		(6,067	)		(771	)		(6,929	)		(1,619	)
Net cash from (used in) financing activities		(40,007	)		8,747			(68,730	)		(298,986	)
Effect of exchange rate changes on cash and cash equivalents		614			(9,835	)		(140	)		(9,300	)
Net increase (decrease) in cash and cash equivalents		24,088			55,916			16,831			(191,256	)
Cash and cash equivalents, beginning of period		233,234			213,566			240,491			460,738
Cash and cash equivalents, end of period	$	257,322		$	269,482		$	257,322		$	269,482

Operating EBITDA is defined as operating income plus depreciation and amortization and non-recurring capital asset impairment charges. Management uses Operating EBITDA as a benchmark measurement of its own operating results, and as a benchmark relative to its competitors. Management considers it to be a meaningful supplement to operating income as a performance measure primarily because depreciation expense and non-recurring capital asset impairment charges are not an actual cash cost, and depreciation expense varies widely from company to company in a manner that management considers largely independent of the underlying cost efficiency of our operating facilities. In addition, we believe Operating EBITDA is commonly used by securities analysts, investors and other interested parties to evaluate our financial performance.

Operating EBITDA does not reflect the impact of a number of items that affect our net income, including financing costs and the effect of derivative instruments. Operating EBITDA is not a measure of financial performance under GAAP, and should not be considered as an alternative to net income or income from operations as a measure of performance, nor as an alternative to net cash from operating activities as a measure of liquidity. The following tables set forth the net income to Operating EBITDA:

	Q2			Q1			Q2		YTD			YTD
	2019			2019			2018		2019			2018
Net income	$	10,259		$	51,616		$	16,755	$	61,875		$	42,404
Provision for income taxes		10,433			24,424			8,461		34,857			18,042
Interest expense		18,369			18,551			12,128		36,920			24,243
Loss on settlement of debt		—			—			—		—			21,515
Legal cost award		—			—			—		—			6,951
Other (income) expenses		(1,251	)		(1,039	)		132		(2,290	)		369
Operating income		37,810			93,552			37,476		131,362			113,524
Add: Depreciation and amortization		32,148			30,247			23,014		62,395			46,333
Operating EBITDA	$	69,958		$	123,799		$	60,490	$	193,757		$	159,857

	Three Months Ended June 30,
	2019			2018
	(in thousands)
Lumber revenues	$	35,322		$	48,991
Energy revenues	$	2,788		$	3,255
Wood residual revenues	$	1,342		$	2,654
Operating income (loss)	$	(89	)	$	4,322

	Three Months Ended June 30
	2019		2018
	(in thousands)
Pulp revenues	$	359,205	$	279,939
Energy and chemical revenues	$	25,594	$	11,693
Operating income	$	42,251	$	36,976